Global Logistics and Supply Chain Strategies - May 2008 - (Page 38)

From Many to One: Managing the MultiSourced Supply Chain BY ROBERT J. BOWMAN Even if a product is assembled in one place, its parts probably come from multiple locations. Here’s how some companies are dealing with the complexities of truly global supply chains. H ere is one definition of outsourcing: a company shuts down its local factory, shifts production to China, makes the entire product there and ships it to the U.S. for sale. If only it were that simple. In reality, global supply chains consist of goods and components sourced from multiple locations. A product might indeed be made in China. But the parts that go into it are likely to come from half a dozen other countries. And that scenario poses massive challenges, as companies strive to synchronize the flow of parts into a central production site. Apple’s iPod is a prime example. The popular music player undergoes final assembly in China. But its hundreds of parts are said to come from China, Taiwan and the Philippines, among other countries. (Apple prefers to keep the details of its supply chain under wraps.) Portions of the newer iPhone reportedly are sourced from Singapore and even the U.S. Automakers have been practicing this strategy for years, says Jane Barrett, a research director with AMR Research Inc. And they have gone far beyond the mere sourcing of individual parts from all over the world. Toyota was among the pioneers of a system where suppliers in various countries make entire sub-assemblies for cars. The practice generates additional complexity, as original equipment manufacturers (OEMs) demand precise delivery of systems that must be merged into the assembly line within narrow windows of time. Because OEMs refuse to keep large inventories of parts on hand, suppliers must coordinate their shipments on a just-in-time basis. While they generally work from forecasts that span eight weeks, they might be required to respond to change orders within half a day, or even a matter of hours, says Barrett. There’s little room for error. At Toyota, “suppliers get told exactly which sequence [of parts] to put on the truck,” she says. “It’s extremely integrated.” A number of tools and management techniques are available to help coordinate a multi-sourced supply chain like Toyota’s, including the kanban system of parts replenishment and Lean methods for eliminating waste from the organization. In addition, says Barrett, enlightened OEMs work with suppliers to create standardized platforms and components, so that a given part can go into multiple models from the same automaker. That level of collaboration, which begins at the design stage, is still in its infancy, Barrett suggests. But it takes on growing importance as companies diversify their sourcing. According to AMR, some 70 percent of a product’s cost is locked in during the early design phase. To control that expense, OEMs need to involve suppliers at an earlier point than the purchase of parts or finished items. Barrett cites one builder of jet engines that selected 20 key suppliers before proceeding with design of a new product. 38 MAY 2008

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Global Logistics and Supply Chain Strategies - May 2008

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